New Delhi: The Government of India has introduced the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0), aiming to revive credit flow in the microfinance sector and deepen financial inclusion.Â
The scheme provides credit guarantee cover to banks and financial institutions through the National Credit Guarantee Trustee Company Limited (NCGTC). This support protects lenders against potential losses on loans extended to Non-Banking Financial Company–Microfinance Institutions (NBFC-MFIs) and other MFIs.
Focus on Expanding Lending and Inclusion
At the core of CGSMFI-2.0 is the goal of restoring lender confidence and expanding credit access. The scheme is expected to facilitate lending of up to Rs. 20,000 crore, benefiting nearly 36 lakh borrowers, particularly from economically weaker sections. By reducing perceived risks, the government seeks to ensure that last-mile borrowers continue to receive timely financial support.
Key Features and Safeguards
The scheme offers guaranteed coverage ranging from 70% to 80%, depending on the size of the lending institution. It also includes safeguards to maintain affordability. Interest rates are capped based on benchmarks such as the External Benchmark Lending Rate (EBLR) and Marginal Cost of Funds-Based Lending Rate (MCLR). Additionally, limits have been placed on on-lending rates charged to end borrowers. A modest guarantee fee structure has been introduced to ensure participation while maintaining operational viability.
Addressing Sectoral Challenges
The initiative comes at a time when the microfinance sector faces liquidity constraints and cautious lending trends. Smaller MFIs have struggled to access funds, affecting their outreach. By mitigating credit risk, the scheme aims to stabilise the sector and encourage renewed lending activity.
Operational Timeline and Broader Impact
CGSMFI-2.0 will remain in force until June 30, 2026, or until guarantees worth Rs. 20,000 crore are issued. The scheme aligns with the government’s broader objective of promoting inclusive and sustainable economic growth, ensuring equitable access to finance across the country.
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